The Tax Publishers2012 TaxPub(DT) 1804 (Karn-HC) : (2012) 345 ITR 0389 : (2012) 251 CTR 0317 : (2012) 206 TAXMAN 0150 : (2012) 072 DTR 0232

INCOME TAX ACT, 1961

--Capital gains--Exemptions under section 54FConstruction of residential property not completed--Assessee had invested his capital gains in construction of a residential property to gain exemption under section 54F. But he was denied exemption on ground that construction of residential property was not completed within the stipulated period of three years. Held: Where assessee had proved that consideration received on transfer had been invested in constructing a residential house, benefit of exemption cannot be denied merely because construction was not complete in all respects and a registered deed had not been executed and registered in favour of assessee.

Income Tax Act, 1961 Section 54F

IN THE KARNATAKA HIGH COURT

N. KUMAR AND RAVI MALIMATH, JJ.

CIT v. Sambandam Udaykumar

ITA No. 175 of 2011

15 February, 2012

JUDGMENT

The revenue has preferred this appeal against the order passed by the Tribunal granting benefit to the assessee, upholding the order of the Commissioner under section 54F of the Income-tax Act, 1961, (For short, hereinafter referred to as, the Act).

2. The assessee Sri. Sambandam Udaykumar filed his return of income for the year 2006-07 on 11-10-2006 declaring an income of Rs. 2,13,68,271. The case was selected for scrutiny, Notices under sections 143(2) and 142(1) were issued to the assessee. In response to the above notice, the authorised representative of the assessee appeared and submitted the details called for. The said details disclosed that during the year relevant to the assessment year 2006-07, the assessee sold the shares of M/s. Assess Technologies India Pvt. Ltd. for a consideration of Rs. 4,18,08,725. Part of the proceeds of the said sale consideration has been invested in purchase of house property to the extent of Rs. 2,16,61,570 and accordingly claimed exemption under Section 54F of the Act. Necessary inquiries in this regard were conducted by the Revenue. The report was submitted on 3-12-2008. The report disclosed that Villa No. 58, Adarsh Palm Retreat, Outer Ring Road, Marathahalli, Bangalore, belongs to Sri. S. Udaykumar, the assessee. Photographs produced showed the progress of construction of the Villa. The sworn statement of Mr. Varsha, Senior Marketing Executive of M/s. Adarsh Group showed that the construction activities are stopped at present. The flooring work, electrical work, fitting of door shutters and window shutters are still pending. Therefore the assessing authority came to the conclusion that the construction is not complete even after lapse of three years of time from the date of transfer of the said shares on which the capital was derived. The assessee has only entered into an agreement of sale for construction with M/s. Adarsh Developers and paid an advance of Rs. 1,23,26,050 as on 31-3-2006 towards the cost investing in house property. Therefore he held that the assessee has neither purchased the property within the period of two years nor constructed the property within the period of three years after the date of transfer of the asset, on which the capital gain was derived, and Section 54F of the Act is not applicable to the assessee. Therefore after taking into consideration the tax paid, he raised a demand for Rs. 32,31,701.

3. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals). After considering the various judgments relied on, the Appellate Commissioner held that the house which the assessee intends to purchase/construct is not even fit to be called as a house, not to speak of residential house. It is neither been purchased nor constructed in the true sense of the term. Hence the assessee is not eligible to the benefit under Section 54F of the Act. Therefore, he dismissed the appeal. Aggrieved by the said order, the assessee preferred an appeal to the tribunal.

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